Even as the Prime Minister’s Jan Dhan Yojana (PMJDY) has helped a majority of poor households in India open bank accounts, there are many activities of financial inclusion still pending fulfilment, said a panel of experts at the annual banking conclave organized by Mint on Thursday.

Vaidyanathan of Capital First said exclusion of the urban poor was one of the most important issues overlooked by the banking industry.

“There is a lot of exclusion, right under our noses, in the urban territories. That has often gone unnoticed, unreported and unattended. So, when we talk of financial inclusion, I’d wish that we bring the urban poor into the agenda. That would make a big difference," he said.

According to World Bank’s Global Financial Inclusion Survey (2012), only 35% of adults in India had access to a formal bank account and only 8% borrowed from institutional and formal sources.

As on 29 January, banks had opened nearly 124 million accounts under the Prime Minister’s financial inclusion scheme, according to data on the PMJDY website. Of this, nearly 74 million were in rural areas, and the rest in urban areas.

Another issue plaguing the banking system is the lack of credit available to those who had opened accounts under the financial inclusion agenda even before PMJDY came into being, Vaidyanathan pointed out.

“The credit facility is available to not even 10% of the current lot of customers. So there is financial inclusion in terms of account opening, but there is exclusion in the credit given to the same customer," he said.

But while talking of credit facilities to the poor and excluded, the banking system also needs to be careful that these loans are not faced with frequent loan waivers by politicians, the group noted.

According to Mahajan of Basix, though India is home to a large population of youth, this population is also unskilled and poorly educated. He estimated that each young person would need about ₹ 60,000-70,000 for skilling purposes in order to make them employable.

“But this cannot be done by the government because it will bust the fisc. So it has to be done through bank loans... We need a guarantee that if these loans are given by the crores, they should be protected in terms of repayment. There should be a mechanism of Aadhaar-based recovery of those loans," Mahajan said.

The panel also discussed the innovations of the banking system in making financial inclusion a viable business strategy.

Sobti from IndusInd Bank said the banking system had already invested ₹ 1,400-1,500 crore under PMJDY, which has helped banks accelerate the implementation of technology and complete processes such as know your customer, which would have otherwise taken longer.

He also talked about the viability of conducting business while ensuring financial inclusion is not affected. Unlike urban areas, where fee is a major contributor to business growth, rural businesses would have to be focused on lending to the population there, he said.

“We (IndusInd Bank) have focused on an asset-led strategy where we have given three quarters of a million dollars to the rural poor," Sobti said.

Akula, who is also the founder and former chairperson of SKS Microfinance Ltd, said the best way to make financial inclusion viable is to bring in multiple products for the customers.

RBL has formed a special core banking solution for financial inclusion which has helped cut costs and improve efficiencies, said Ahuja. About 55% of the bank’s loan book is tilted towards micro, small and medium enterprises and lending towards agriculture and rural opportunities, he said.

Prasad of MFIN said that while it was important to make the segment financially viable, it should be ensured that lending was based on “sanity and not vanity". He discussed the example of the microfinance industry where some players had indulged in profiteering—instead of profiting from the business—which led to a crisis in 2010. He also pointed how the sector had now learned from its mistakes and was coming back to profit, despite strict regulatory conditions.

The panel also discussed the advent of small and payments banks, while talking about the challenges and opportunities that they are likely to face. The Reserve Bank of India announced final guidelines for licensing of small and payments banks on 27 November. These banks are aimed at serving customers who do not have access to the formal banking system.

“India will need at least 50 small banks in the next five years," Vaidyanathan said.

According to Mahajan, a small bank would need to develop a deposit base of at least ₹ 1,200 crore to be viable for business. This was likely to take a few years and could play as a “valley of death" for many new players, he added.

When it comes to competition, established banks need not need be wary of small and payments banks, but rather learn about the innovative technology and business models that they will bring in to the banking space, said Sobti.